bpsm final1

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    Team 1

    Venkata Ramya Kolluru (9058)

    Sri Prasanna M (9111)

    TATA Motors - Jaguar & Land Rover

    Acquisition Expert plan

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    Introduction

    Financing the acquisition

    SWOT

    Challenges to TATA

    Reasons to acquire

    Why should the deal work?

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    Belongs to TATA group 150 year old

    Previously Tata Engineering and Locomotive company, Telco

    Listed on the NewYork stock exchange in 2004

    Tata Motors is the Indias largest automobile company

    It is the leader in commercial vehicles and the second largest in

    passenger vehicles

    311/10/2010

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    A statement of ultra luxury

    Rarely advertised

    Fords Formula One entry since 1990s

    Known for superior off-road performance

    Used by military for projects and expeditions

    Safe but less reliable

    Land Rover has a presence in 147 countries, Jaguar has a

    presence in more than 80 countries

    411/10/2010

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    11/10/2010 5

    52%

    27%

    11%

    10%

    EuropeUS

    Asia pacific

    ROW

    Source: Annual reports, Emkay research

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    TATA Motors

    Revenue $7.2 billion in 2006-07

    Ford

    (in Rs. cr) Mar '05 Mar '06 Mar '07

    Net sales 17,199.17 20,088.63 26,664.25

    Reported net profit 1,236.95 1,528.88 1,913.46Debt Equity Ratio 0.61 0.53 0.59

    Source: moneycontrol.com

    611/10/2010

    ( In milliondollars)

    2007 2006 2005 2004

    revenues 172,455 160,065 176835 166040

    Net Income (2,723) (12,613) (1,440) (3,038)

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    711/10/2010

    Source: IBS Research center report

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    811/10/2010

    Source: IBS Research center report

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    911/10/2010 Source: IBS Research center report

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    3 ways:

    Existing Cash reserves

    Have cash pile of over Rs.6000 crores ($1.2 bn) and generated free cash

    of over Rs.1000 crores during FY07 Debt (loans from banks, issuing debt securities)

    Low interest rates (5%) are available because of recession

    Debt to equity ratio is low 0.59 (can raise more funds). Low leverage of the

    auto business provides funding flexibility

    Equity (issuing of shares)

    Being a well established company, funds can be raised both in domestic

    and overseas market as the company is performing well.

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    TATAs are maintaining a debt to equity ratio around 0.57 for

    the last 4 years, we assume that they would desire to maintain

    same ratio in future also.

    It can go for financing: $ 1.8 bn of equity

    $ 1.026 bn of debt

    Remaining amount through cash reserves

    If the company is not able to raise equity before acquisition it

    can go for short term debt (bridge loan), which can be repaidwith equity raised in latter part of acquisition.

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    Strengths

    Tatas strong management

    capability

    Strong monetary base to invest

    Weakness

    Jaguars declining sales

    record

    Inexperience in handling

    such luxury brands

    Opportunities

    Support from Ford in terms

    of Technology, engine, IT,

    Accounting Adding up of luxury brands in

    the product line

    Access to European market

    Threats

    Strong presence of

    competitors like Mercedes,

    B

    MW, Lexus

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    Marketing the product against stiff competition.

    TATAs presence only in low and mid car segments.

    TATAs stand for: Reliability, value for money Trust etc. How do

    they keep up with JLR? Acquisition during recession in US and Europe which contributes

    88% of revenues of JLR.

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    Long term Strategic commitment to automotive sector

    Reduce company's dependence on the Indian market, which

    accounts for 90% of its sales Opportunity to venture into luxury car market.

    Increased business diversity across markets and products

    Land rover provides a natural fit for TMLs SUV segment

    Jaguar offers a range of performance/ high-Tech vehicles tobroaden the portfolio

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    Ensuring global presence.

    Reduced Interest rates in India due to recession.

    Great opportunities in US and UK market after recession.

    Rising incomes and brand consciousness in India also. JLR brings with it advanced R&D facilities and qualified

    manpower which will assist TML in development and patenting

    of new technology

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    Ford Tata Motors Losses at Jaguar(2006): $715 Mn

    (Jaguar a dog in BCG matrix)

    Opportunity to participate in 2 fast

    growing auto segments & act on

    strategy of internationalization

    Ford fails to bring down productioncosts

    Land rover: natural fit for TMLs SUVsegment

    Jaguar: luxury vehicles broaden the

    brand portfolio

    Combines J+LR Benefits from component sourcing,

    design services and low costengineering

    16

    11/10/201

    0

    Source: www.businessweek.com/globalbiz/cantatarevupjaguar

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    100% stake in Jaguar &

    land Rover Business

    TAMO has acquired the business & initially they will be

    operated independently of the partner.

    3 Plants in UK These are well invested plants

    2 advanced design &

    engineering center

    4-5000 engineers engaged in testing ,prototype design

    & powertrainEngineering , development & integration

    26 National sales company Both existing national sales companies of jaguar/land

    rover & also those that are carved out of current Fordoperation

    Intellectual property rights This covers all key technologies to be transferred to JLR &

    perpetual royalty free license on technologies sharedwith Ford

    Capital Allowance A minimum guaranteed amount of $1.1 bn which willhelp managing in Tax going forward

    Support from Ford Motor

    Credit

    Ford Motor Credit will continue to support the sales of

    JLR for around next 12 months

    Pension Contributed by

    Ford

    Ford will contribute $ 600 mn of the Pension Fund

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    Tatas will keep JLR separate

    Marketing and Technology

    Luxury is where the money is

    The deal will not be too expensive Have previous experience of acquisition of Tetley, Tyco etc

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    The Tata strategy is essentially a top-down strategy. You can

    acquire the image of a high quality, manufacturing facilities of

    high quality, you don't acquire liabilities, but brand assets."

    1911/10/2010

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    Every noble acquisition is attended with its risks; he who fears to

    encounter the one must not expect to obtain the other- Pietro Metastasio

    Hubrius hypothesis- Corporate takeovers generate positive

    gains, that target firms shareholders benefit and that bidding

    firms shareholders do not loose.

    2011/10/2010

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    2111/10/2010